Wednesday, February 18, 2009

An Interview with Senator Bob Corker on Auto Bailout Nation

Senator Bob Corker told me last night on The Kudlow Report that Team Obama needs to draw a line in the sand and finish negotiations with with GM & Chrysler. Here is the transcript of my CNBC interview with him regarding key developments in the auto bailout nation saga.LARRY KUDLOW: Nobody knows more about the auto bailout discussion and debate than our next guest, Tennessee Republican Senator Bob Corker. Mr. Corker, welcome back, sir.

SENATOR BOB CORKER: Larry, it's always good to be with you. Thank you.

KUDLOW: All right. This was a preliminary agreement on the way to the end of March agreement, but what we know is there's a lot that's not settled. The debt story is not settled. The wage and benefit story is not settled. The VEBA health care trust story is not settled. I want to ask you at the top. Your point, whatever it was, six, eight weeks ago in mid-December was that the government should have put it in a statute and made a law to really put the pressure on these issues. They never did. These were the non-binding issues as you well know. And the non-binding issues are still unbound as best I can see. What's your take on this latest update - report today?

CORKER: Well, it's a lot to take in. We did have a briefing earlier with Chrysler officials. It started at 6:00. We obviously tuned in to the Rick Wagoner press conference, and we actually have a discussion with them tonight at 8:00. A lot to take in. I do think Chrysler was a little more specific as far as where they had gotten as it related to some of the UAW concessions and the VEBA concessions. Still having some trouble with some of the outstanding debt. Obviously they have secured debt holders which is very different from GM.

I do think it would be very helpful for the Obama administration to say, look, this is a line in the sand. These things have to occur. This is not just discussion. I think there's been some difficulty in getting everybody to actually focus because there's been such a vagueness. There has not been a czar. There hasn't been any indication from the administration as to how serious they might be as it relates to this. And so I think should that occur, maybe these concessions by all parties which are necessary for these companies to succeed, maybe they can be more finite, more concrete, and actually be in such a place that we can all discern what the actual transaction consists of.

KUDLOW: Let me just focus on this issue of the car czar. This Ron Bloom, who apparently is a very smart, tough guy who’s worked in the steel industry and so forth. You may have a thought on him or not. But I want to ask you. He is not the car czar. There's not going to be a car czar. There's going to be a sort of car team, as I understand it. Geithner from the Treasury, Larry Summers from the White House. But you’re also going to have, as I understand it, Departments of Transportation, Labor, Commerce, I don’t know who else. This tells me it's a diffuse process, chock full of politics, that's going to help the UAW and is not going to get the restructuring job done. In other words, without a car czar, without clear government statutes to get things done on wages and benefits and the debt and all the rest of it. Now you've got this large team of cabinet officers. This suggests to me this is a moving target, totally politicized, sir. Your thoughts?

CORKER: Well, look. I think all that's really necessary is for the Treasury Department and Larry Summers just to say, look, this is real. And these items that were laid out in the loan documents have to occur. They have to occur by a date certain. The fact is though, the bigger question, even if that does occur, is the fact that these companies, the sales in January were far below what they expected. These companies had plans earlier, at 11 million SAR [seasonally adjusted rate] this next year. Obviously they think it's going to be around 10.1 SAR now.

And so the whole issue is going to be not just the fact that they have this viability plan which was, by the way, going to require no more taxpayer funding. But it's evident regardless of what they do with these negotiations, they feel they're going to need additional moneys and that's going to be the next hurdle, if you will, for this country to digest and to understand. Chrysler's employee level is going to be down at the 52,000 level. There's going to be a significant investment needed in their company to keep them going. GM is saying the same thing.

So, yes, two things need to happen. And that is number one, there needs to be a line in the sand and finish these negotiations. My sense is, Larry, that they're actually somewhat closer on the labor side than what was indicated today. I had a number thrown out. I think since GM did not publicize the number today, it was actually a pretty sizeable number of labor – dollarswise -- that labor had apparently conceded as it related to substitute pay and all those kinds of things to get them competitive. So we need to get a line in the sand on all those things and understand it and then digest what the taxpayers really ought to do in this case. Because it's evident even if they reach concrete decisions on these, they're going need more money from the federal government to stay alive.

KUDLOW: A lot more. A lot more. I mean want to ask you about the more money part from a taxpayer's stand point, sir. I mean look, GM is coming in with up to $17 billion increase? That's what they're asking for today as I understand it. There's no end to that. You know that. I know that. There's no end to that. We own it. The taxpayers own it. Do you doubt that the Obama administration and Congress will deny them the funds they need? Do you believe there's an honest chance they'd go into bankruptcy? I don't think so.

CORKER: Both of the companies in talking to Chrysler, they had indicated and it's in their plan so it's public knowledge that if they went into bankruptcy, they felt like it would take actually $25 billion in debtor-in-possession-financing for them to actually come around. I heard the same number from GM. So, you know, Mark Zandi, if you remember, who testified in the second hearing, said that if any money went into these companies without appropriate restructuring, the taxpayers were going to be on the hook for $75 to $125 billion. And that's what our effort this last December was all about, was to go ahead and cause the companies to get restructured so that would not occur.

I will say - I'm down here in Tennessee. Businesses are suffering tremendously. I lived through the early '80s. I lived through the early '90s. I did my financial statement in my head every night just to see if I could pay everybody back, which I did, and did it on time. I have not seen an economy like we have in my lifetime. It is tough. The credit situation is very difficult. And I think that what I want to do is digest more fully what they've put forth before I say what I think we ought to do. I do think though, in general, all of us in this country are becoming far more concerned about continual bailouts, continuing taxpayer money going into companies, going into institutions, and I think at some point we're going to have to take some tough medicine and call some of the financial institutions and others to actually fall by the wayside. I’m not saying that in this case yet…

KUDLOW: Debtor in possession, sir. $25 billion for DIP money in a bankruptcy, debtor in possession, that's the cheaper course. You're talking about a $100 billion bailout. You could be talking about a $150 billion bailout. In effect, this is an anti-recession tool. It may not be the bailout we wanted to restructure. Yes, it's a bad recession. But look, once you open that door, you know who else is going to go through that door. Other industries, construction, retailers, you name it. The pork barrel, stimulus package, what does Rush call it? Pork-u-lus? That’s the future. We’re moving left. We’re picking winners and losers. We’re going on the European model. Are we not?

CORKER: It's very concerning. I'm giving talks down here in Tennessee and I think if any of us had imagined where we might be as country, 24 months ago today, I think we would have been shocked to have been talking about some of the terminology with companies, some of the things that are occurring and I'm very concerned about the slope that we're going down. So I think before, Larry, weighing in on what I think exactly is the course we ought to take here, I want to digest these plans a little more fully. We have a briefing tonight with GM at 8:00. And I thank you for this interview and good luck on the rest of the program.

KUDLOW: You're terrific, sir. When you do digest and come up with your conclusions, I hope you’ll come back and give us a report. We value your judgment on this.

About Me

Larry Kudlow

Lawrence Kudlow is CNBC’s Senior Contributor. For many years, he was the host of CNBC’s “The Kudlow Report”. He is also the host of The Larry Kudlow Show, which broadcasts on Saturdays from 10am to 1pm ET on WABC Radio and is syndicated nationally by Cumulus Media. He is also a nationally syndicated columnist and a former Reagan economic advisor. CNBC's The Kudlow Report also airs on Sirius (ch.129) and XM (ch.127) weeknights at 7pm ET.